VAT is coming to the UAE, time to study up

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Benjamin Franklin famously wrote “nothing is certain but death and taxes”. Many will regard tax procedures as a combination of both certainties: concerned with taxes, and deadly dull.

I urge you, however, to persevere because tax is coming to an Emirate near you. Soon.

Federal Law No 7 of 2017, issued by the president aims to regulate rights and obligations between the Federal Tax Authority (FTA) and taxpayers through “common procedures and rules applicable to all Tax Laws in the State” (“the Tax Procedures Law”, or “the Law”). It is evident that the Law is capable of broader application than just to VAT.

The law will come into force 30 days after publication in the Official Gazette. The UAE Ministry of Finance has put an unofficial translation of the law on its website.

This “landmark” Law is an important piece in the jigsaw of federal tax legislation, but other pieces still need to be put in place. The draft UAE VAT Law is yet to be published, together with the Executive Regulations which will almost certainly accompany it. The Tax Procedures Law will also have its own Executive Regulations, to be issued by the UAE Cabinet within six months of the issuance of the Law.

So, given that there is more to come, what does the Tax Procedures Law hold? A lot.

Take record keeping: any person conducting any business must keep accounting records and commercial books of his business. The Law gives catch-all – yes, catch all - definitions to “Person” and “Business”. This affects all – and I do mean “all” - business-people. Executive Regulations will provide further details.

Take language: material relating to Tax (i.e., any Federal tax) must be submitted to the FTA “in Arabic”. The FTA may accept such material in any other language, but with a translation into Arabic if so requested. Again, the executive regulations will provide more detail.

The Tax Procedures Law also sets out compliance obligations for “taxable persons”; again, a broadly defined term, on whom specific requirements are imposed by the law.

The law also envisages (and defines) Legal Representatives and Tax Agents. The latter must be listed in a Register and licensed for the purpose. The Law sets out conditions for registration. Again, the Executive Regulations will shed more light, but tax Agents are likely to be in great demand.

The Law also empowers the FTA to perform a Tax Audit on any Person (i.e., not just a Taxable Person) to ascertain the extent of that Person’s compliance with the Federal tax legislation. Again, the net is cast wide, and more detail will be provided in the Executive Regulations. The FTA has roving powers (and the subject of the audit has correlative rights), but any Person subject to an audit is required to “facilitate and offer assistance” to the auditor.

The Tax Procedures Law sets out circumstances in which the FTA may raise a tax assessment, and provides for administrative penalties to be imposed. Tax evasion – i.e., the use of illegal means resulting in less tax being paid than due, non-payment of due tax, or an unentitled refund of tax – is rightly viewed very seriously. Expect a prison sentence and a monetary penalty not exceeding 5 times the amount of tax evaded.

What about challenging a decision of the FTA? The first step will be to ask for an internal FTA administrative review.

If, on review, you are still dis-satisfied, the next step will be to take the matter to a Tax Disputes Resolution Committee (which will have one judicial and two expert members). To reach the Committee, there is a “pay first, argue later” requirement: the Committee cannot accept an objection “if the Tax and Penalties subject of the objection have not been settled”.

If the sum in dispute is not more than Dh100,000, the committee’s decision is final. If the amount in dispute is above that sum, either party may challenge the committee’s decision before the competent court, i.e., the federal court within whose jurisdiction the FTA’s head office or relevant branch is located.

Final decisions are executory instruments, enforceable through the execution judge in accordance with the Federal Civil Procedures Law. There are strict time-limits for taking the steps described.

Non-payers will fare no better. If a formal notice to pay fails to achieve payment, the FTA Director General will issue a decision, obligating the taxable person to pay the sum due. The Director General’s decision is also an executory instrument, enforceable under the Civil Procedures Law.

The Tax Procedures Law is wide-ranging but, in important respects, will be supplemented by the Executive Regulations. Some instances have already been given. Another is the FTA’s discretion to reduce or exempt a Person from an Administrative Penalty. That discretion depends on non-compliance being justified within the relevant provisions of the Executive Regulations.

And, yes – the Tax Procedures Law even contains express provision for the payment of tax “in cases of death”. Can the flicker of a posthumous smile from Benjamin Franklin be detected?

The admonition “be afraid; be very afraid” may be too apocalyptic – but, when it comes to tax, be aware; be very aware.